Travelling day. Actually, they will all be travelling days for another week. Will post when possible.
The producer-price index declined a seasonally adjusted 0.3% from the previous month, its weakest reading since January, the Labor Department said Tuesday. Economists surveyed by The Wall Street Journal had expected a gain of 0.1%.
Producer prices were up 1.4% from September 2018, the smallest 12-month gain in almost three years. (…)
Behind the unanticipated decline in producer prices last month was an unusually large 1% drop in trade services, a volatile measure of margins received by retail and wholesale businesses. The Labor Department defines the margin of a transaction as the difference between the acquisition price and the selling price.
The so-called core producer-price index, which excludes trade services as well as food and energy, was flat in September from August and up 1.7% from a year earlier. (…)
The U.S. dropped from the top spot in the World Economic Forum’s annual competitiveness report, losing out to Singapore.
Hong Kong, the Netherlands and Switzerland made up the rest of the top five, according to the WEF survey published on Wednesday. On the U.S., it noted growing uncertainty among business leaders and said trade openness has declined. (…)
With a new slowdown emerging, the WEF said fiscal policy has been underused. It joined the chorus calling for more government support, particularly in investment to boost productivity.
The WEF also said central banks must take some blame for weak productivity, as their trillions of stimulus keep zombie firms alive, sometimes crowding out stronger businesses. Given monetary policy resources are so depleted, it said investment-led stimulus would be an “appropriate action to restart growth in stagnating advanced economies.”
“Although loose monetary policy mitigated the negative effects of the global financial crisis, it may also have contributed to reducing productivity growth by encouraging capital mis-allocation…. As monetary policies begin to run out of steam, it is crucial for economies to rely on fiscal policy and public incentives.”
-WEF Global Competitiveness Report 2019
While the U.S. drops down to second in the survey of 141 countries, the WEF said it remains an “innovation powerhouse,” ranking first in business dynamism and second on innovation capability. Also in the top 10 were Japan, Germany, Sweden, the U.K. and Denmark. Canada and France were ranked 14th and 15th respectively, while China was in 28th place.
Growth in China’s business activity gained further momentum at the end of the third quarter, according to the latest Caixin PMI data, led by faster manufacturing growth. Near-term indicators, such as new orders, backlogs of work and employment all showed accelerated improvements. However, longer-term prospects remained subdued, with concerns often relating to trade tensions.
The Caixin China Composite PMI, compiled by IHS Markit, rose from 51.6 in August to 51.9 in September, signalling a modest improvement in the health of the economy. The latest reading was also the highest for five months.
The stronger upturn in business activity reflected accelerated manufacturing output growth, which indicated the joint-strongest expansion since 2016 and helped offset slower service sector growth.
Demand conditions also strengthened in September. Overall new business volumes increased at the fastest pace for just over one-and-a-half years, driven mainly by the domestic market as foreign demand continued to weaken. New export business fell for a second straight month, underscoring the negative impact of deteriorating global trade conditions.
With backlogs of work now increasing at the joint-quickest rate since early-2011 during September, hinting at tighter operating capacity, companies stepped up their hiring. Job creation was not only reported for a second month in a row in September, but also ran at the fastest pace since the start of 2013. That said, overall employment growth was predominantly from the service sector, as factory job levels remained stagnant.
September saw the best improvement in manufacturing conditions since February 2018, driven by accelerated growth in both production and new orders. However, this improvement was uneven across the sector. Delving into the details of the survey revealed that, while sustained output growth was evident across the three firm sizes (small, medium and large), large Chinese manufacturers saw the fastest expansion in production, suggesting that current fiscal stimulus may have benefitted larger goods producers more than their small-to-medium-sized counterparts.
Business activity in the service sector meanwhile cooled in September, showing the smallest expansion for seven months. However, other survey indicators suggest an improvement in the situation could be around the corner. New business growth was the fastest since the start of 2018, which led to the first time in nine months that a rise in unfinished workloads was reported. Services job creation also accelerated to a rate not seen since January 2017.
Unfortunately, the improved readings on overall output and order books was not matched by a rise in optimism among Chinese firms. Business sentiment about output over the next 12 months, while positive, slipped to a three-month low, and remained well below the historical average. The chief concern highlighted by companies continued to be the impact of the US-China trade war.
German IP rose 0.3% in August. Excluding energy and construction sectors, production increased jumped 0.7% MoM, as an increase in intermediate and capital goods more than offset a decline in consumer goods. (…)
Germany’s manufacturing orders continue to run weak. Overall orders are still declining. Total orders have fallen month-to-month five times in the past eight months. Currently, order weakness concentrates in the domestic sector where orders have fallen sharply in August and are lower month-to-month in six of the last eight months. Foreign orders are stronger month-to-month in August and lower month-to-month in four of the last eight months. Order weakness has spawned serious talk that Germany may slip into what is being called a ‘technical recession.’
Since German GDP declined by 0.1% in Q2 (-0.3% annualized), any decline in Q3 (without an upward revision to Q2) will constitute two quarters in a row of declining GDP, which some call a ‘technical recession.’ (…)
The German economy is still under great deal of pressure and it has been slowing down. Domestic orders fall by 7% over 12 months and then at a stepped up -13.5% pace over six months. But over three months domestic orders are falling at a 9.9% pace, still a rapid decline and worse than the year-over-year pace but not worsening compared to the six-month pace. Moreover, foreign orders, that are lower by 6.4% over 12 months, are now rising over six months as well as over three months, in both cases at nearly a 7% rate of positive growth. And the German economy is very dependent on its foreign orders. So the downward momentum seems to be abating even as it is in train.
Euro zone banks face growing pressure on earnings from a maturing business cycle, and their projections for lukewarm earnings in the coming years may still be too optimistic, the European Central Bank said on Monday.
Struggling with high costs and melting net income growth, fewer than half of the currency bloc’s big banks earn their cost of equity – a potential obstacle to any economic recovery as Europe is traditionally based on bank-led finance.
Banks have projected a dip in their return on equity both this year and next before a slight recovery in 2021, but the ECB said in a regular risk assessment that conditions have since deteriorated.
“There are significant downside risks associated with such a scenario: the macro-financial environment has worsened in the period since these projections were prepared, and banks may have not fully incorporated the effects of competition into their estimates,” the ECB’s bank supervision arm said.
It noted that the economic cycle is maturing and the global outlook has worsened, due in part to increased global protectionism, which is already resulting in a high inflow of new non-performing loans.
The ECB cut interest rates last month to new record lows, and its supervisory arm noted that low rates for even longer, along with intense competition, will further weigh on banks’ ability to generate income.
It also warned that the sector was exposed to sudden changes in the risk assessment of some governments as debt-sustainability concerns remain “pronounced,” a problem as banks tend to be highly exposed to their sovereigns, creating a so-called doom loop between the lender and its host country.
Outlining its priorities for 2020, the supervisor said balance sheet repairs were key, with a focus on working down assets that have turned sour, more adequate risk models, and an enhanced focus on trading and market risks.
“Inflows of new non-performing loans still appear to be on the high side. Although the most recent NPL strategies have generally been very ambitious, the maturing economic cycle in the euro area might limit the banks’ progress in implementing these strategies,” the ECB added.
US pushes for Western rival to Huawei Officials suggest funnelling money to Nokia and Ericsson to help them compete with Chinese telecoms group
The FT reports that US government officials, realizing that the U.S. “gave up our superiority in making telecoms equipment decades ago, and now we are realising that this might not have been the best choice for national security reasons” are contemplating “issuing credit to companies such as Nokia and Ericsson to enable them to match the generous financing terms that Huawei offers to its customers” Apparently, “almost every department and agency is desperately looking right now for ways to get back into this game.”
Travelling day. Actually, they will all be travelling days for another week. Will post when possible.
German industrial output rebounds but recession fears linger
Orders Suggest That Germany Flirts With Some Sort of Recession